AML in Cryptocurrency in the UAE

While the UAE is taking a step towards being a global financial technology hub, its rapid emergence of cryptocurrency brings with it new challenges, primarily in terms of anti-money laundering (AML) and other related financial crimes.

As such, several initiatives have been taken by the UAE government to include Anti-Money Laundering provisions within the cryptocurrency sector to set it in line with international standards for further growth sustainably while averting risks.

Also read: UAE AML/CTF Compliance

UAE’s Legal Framework for AML in Cryptocurrency

• The UAE has a robust AML framework through the Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism, making any financial transaction in digital assets subject to AML compliance. Businesses providing services in virtual currency should therefore comply with all AML requirements.
• The Securities and Commodities Authority (SCA): The SCA regulates the securities markets and has extended its purview to include regulation over virtual assets, ensuring compliance by market participants with AML regulations, and promoting transparency and integrity of the financial markets.
• The Financial Intelligence Unit (FIU): Under the CBUAE, the FIU plays a vital role in monitoring suspicious transactions, including those that involve cryptocurrencies. The reporting entities, such as crypto exchanges, shall file their STRs to the FIU once they have detected any activity potentially signaling money laundering.
• Cabinet Resolution No. 111 of 2022 brought in regulations concerning virtual assets (VAs) and virtual asset service providers (VASPs) at the federal level in the UAE. This law made it mandatory for all crypto exchanges and their service providers to obtain licenses from the Securities and Commodities Authority (SCA) or local regulators such as VARA in Dubai. The resolution will bring the virtual asset framework in the UAE in line with the Financial Action Task Force (FATF) standards by ensuring the due compliance of AML/CFT across all Emirates except DIFC and ADGM, which have their independent rules.

Role of the Securities and Commodities Authority

In the year 2020, UAE’s SCA passed Decision No. 23 of 2020 concerning Crypto Assets Activities Regulation. This decision, promulgated by the SCA, has provided a regulatory framework concerning the offering, issuance, listing, and trading of crypto assets in the UAE. To this effect, it applies to offerings of an initial coin offering (ICO), exchanges, marketplaces, virtual asset platforms, custodian services, and any other financial services relevant to them.

Also read: goAML Registration in UAE

It ensures that Know Your Customer (KYC) policies are implemented to authenticate the identity of users and confirm the traceability of transactions, among other requirements. Further, the exchanges and other service providers are responsible for performing due diligence concerning customer activities to report unusual activity that may raise suspicion of trying to use such systems for money laundering. 

However, in May 2023, the SCA issued two new regulations relating to virtual assets: 

1. The SCA Chairman of the Board of Directors’ Decision No. 26/RM of 2023 about Virtual Assets Platform Operators; and
2. The SCA Chairman of the Board of Directors’ Decision No. 27/RM of 2023 amending Decision No. 13/RM of 2021 about the SCA Rulebook.

Crypto AML Obligations

Following are some of the key requirements that a business involved in cryptocurrency in the UAE shall consider:

1. Registration and Licensing: VASPs must observe the licensing requirements of the competent regulatory authority under the laws of the UAE. Such operators in ADGM will be required to register with FSRA and will be subject to AML regulations by FSRA. Similarly, VASPs in the DIFC must adhere to the guidelines of DFSA.
2. KYC and Customer Due Diligence: AML regulations demand that cryptocurrency businesses conduct adequate CDD to identify their customers. This includes:

• Know Your Customer (KYC): Information about the customer is obtained and verified to ensure that customers do not appear to be involved in illegal activities.
• Ongoing Monitoring: Transactions should be monitored constantly for identifying and reporting suspicious activities.

1. Suspicious Transaction Reports (STRs): Crypto transactions of a suspicious nature are to be reported to the concerned FIU within the required timeframe.
2. Transaction Monitoring: Ongoing transactions are to be monitored by exchanges, and customers falling into high-risk categories should be managed suitably.
3. Compliance Officers: All licensed exchanges should designate compliance officers for the implementation of policies related to AML.
4. Reporting Requirements: Every business dealing in cryptocurrency must report any suspicious transaction to the Financial Intelligence Unit, UAE, which may be associated with money laundering or terrorist financing.

Penalties and Enforcement

There are strict punishments for organizations and persons if the requirements regarding AML are not fulfilled in the UAE. The punishments range from fines, and suspension of suspected assets, to criminal prosecution. 

Financial institutions may be fined between AED 50,000 and AED 1 million, depending on the severity of the violation. Moreover, the authorities can also ban travel and freeze funds resulting from criminal actions. The Executive Office of Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) also collaborates with international organizations like the Financial Action Task Force (FATF) to ensure compliance with global AML standards. UAE authorities are working with crypto exchanges to monitor high-risk transactions in real time.

Challenges and Recent Developments

Although the UAE had a strong regulatory framework, from the perspective of cryptocurrency, such risks as cross-border transactions, decentralized networks, and anonymity are challenging in their uniqueness. To counter such risks, the UAE has recently increased monitoring related to crypto activities and introduced advanced technologies like blockchain analytics, which are innovative means for tracing suspicious transactions.

In 2023, the government tightened AML enforcement by setting new compliance deadlines and conducting audits of the exchanges and VASPs operating in the UAE. The CBUAE, and FIU, periodically issue guidance on emerging threats within the crypto space to maintain vigilance within the industry.

How Farahat & Co. Can Assist

Farahat & Co. offers complete support to any business venture with the AML requirements of the UAE cryptocurrency space. Whether through compliance audits, preparation of KYC documentation, or filing a Suspicious Transaction Report, our team covers the crypto business at its best and efficiently meets all regulatory requirements.

At Farahat & Co., we specialize in helping businesses understand the complex regulatory requirements in the UAE. Our team of experts can support you with:

• AML Compliance: Ensuring your company is fully compliant with all AML requirements.
• Licensing and Registration: We assist you in obtaining all sorts of licenses in general.
• Risk Management: Providing the best solutions for risk management to save your company from serious threats.

Contact Farahat & Co. today to make sure you are fully compliant with the UAE AML framework and secure your crypto operations.